Wealth And Its Origin

The creation and the use of wealth are everywhere governed by natural

laws, and these, as discovered and stated, constitute the science of

Economics. Some of them come into operation only when men live in more

or less civilized societies and work in an organized way, while others

are operative wherever men work at all. Every man who lives must have

something that can be called wealth, and, unless it is given to him,

must do something in order to get it. A solitary hunter, living in

a cave, eating the flesh of animals and clothing himself in their

skins, would create wealth and use it; but he would not take part in a

social kind of industry. What he does could not be described as a bit

of "social," "national," or "political" economy. Yet the gaining of

his living would be an economic operation and would involve a creating

and using of wealth. A statement of the laws governing the processes

by which such a man makes the earth yield to him means of support and

comfort would constitute a Science of the Economy of Isolated Life,

which is a part of the general Science of Economics.

Primitive Capital

If an isolated man hunts with good implements,

he gets more game than he would have done if he had not used some of

his time in making such implements. It pays such a man to interrupt

his hunting long enough to make a spear or a bow and arrows. This

amounts to saying that it is an advantage to him to become, in a

simple way, a capitalist as well as a laborer; for the primitive

implements of the chase are forms of productive wealth, or capital.

Moreover, if he possesses foresight, he will keep enough food within

reach to tide him over periods when game is not to be had, and such a

store is another form of capital.

The Field of General Economics

The economy of a man who works only

for himself is subject to laws that are based on his own nature and

the character of his material environment. Because he is what he is

and because nature is what it is there is a certain way in which he

must proceed, if he will live at all, and there are certain conditions

which must exist, if he is to live well. The inherent productive power

of labor and of capital is of vital concern to him, since he is both a

laborer and a capitalist; but he is in no way interested in what we

commonly call the relations of labor and capital, since that

expression always suggests the dealings of one class of men, who

labor, with another class, who own or control productive wealth. The

study of such relations takes us at once into the domain of Social

Economy; but we can study certain universal laws of wealth without at

all entering that domain. When we speak of the power that resides in a

bow and arrow, we refer to a truth of General Economics and one

which illustrates the inherent power of capital, though we may be far

from thinking of lenders and borrowers in a modern "money market" or

of dealings of any one class of men with any other.

The Field of Social Economics

The moment that we begin to examine

economic relations that different classes of men sustain to each

other, we enter the realm of Social Economics; and we do this

whenever we study modern business dealings. Even our hunter would take

part in a social economy if he began to sell some of his game; and

from that time on his income would depend, not wholly on his relation

to material nature, but partly on his relation to other men. A good

market for his game would come to be of the greatest importance to

him; and a market for anything implies a social method of securing


Fundamental Facts Common to Primitive Life and Social Life


relations which men sustain to each other in civilized industry are

thrown into the foreground in the science of Social or "Political"

Economy.[1] It is an organized system of industry in which we are

engaged, and it is that which we care most to understand. Until

recently we have had a far less satisfactory understanding of the

social element in industry--that is, of the relations that men who are

producing wealth sustain to each other--than we have had of such

general facts as a primitive producer needs to know. We have had, for

example, much information concerning the materials which the earth

contains and the way to make them useful. We have had a practical

knowledge of what wealth is and of the mode of creating it, and we

have been able to identify it as we have seen it either in the raw or

the finished state. We have known what labor is, how it proceeds and

what helps it needs to enable it to make clothing, to prepare food,

etc. We have not known as much about the way in which the modern

market for such products is regulated, and how a modern tailor or

baker shares gains with the man who employs him and provides him with

materials and tools, and the main purpose of studying Economics is to

get an understanding of such social facts; but this cannot be done

without first bringing before the mind the more general facts

concerning the inherent nature of wealth itself and of the activities

that are always necessary--in uncivilized life as well as in

civilized--for creating and using it.

[1] Past usage renders the somewhat misleading term

Political Economy more available than the more accurately

descriptive term Social Economics, as the title of the

science which treats of the creation and use of wealth by an

organized society. Either title implies the existence of such

an organization, but the word political calls attention to

the fact that it is under a government. The fact that, in a

study of wealth, is most important is that the exchanges of

products which spontaneously take place create an industrial

society whose activities, going on as they do under a

government, constitute the subject of the studies which are

properly indicated by the traditional term, Political

Economy. Government as such is not the subject of those


General Facts First in the Natural Order of Study

The primitive

and general facts concerning industry, which, in a broad sense, is the

creating of wealth, need to be known before the social facts can

profitably be studied; and a statement of the principles of Political

Economy should therefore begin by presenting a body of truth which is

independent of politics and sociology and so general that it is

illustrated even in that simplest of all conditions, in which no

market exists and every man makes by his own labor all the goods that

he uses. The wealth of a Crusoe, that of a solitary Esquimau, and that

of a pygmy in equatorial Africa have laws as well as that of a

European or American employer or bondholder. The qualities in matter

which make a share of it important for promoting the welfare of its

possessor can be detected in the simplest commodities that are

anywhere used. All kinds of industrial products have a common origin.

Labor and capital act together in making a birch canoe as truly as

they do in producing a transatlantic liner; and the productive power

of each of these two agents is everywhere governed by certain general

laws. Before ascertaining what is true of wealth when capital has

become complex and when laborers have become specialists, each

producing one particular part of one product and securing many

finished goods in exchange for it, it is well to state some facts

relating to wealth which are so general that they appear in all stages

of civilization.

The Nature of Wealth

The old English word weal describes a

condition of life. It is the state of being "well off," or of having

one's wants amply supplied. Well-being in a broad sense of the term

may depend largely on a man's state of health, his temperament, his

conscience, or his relation to his friends; but the weal that is so

secured is not described as a state of wealth. That depends on the

possession of useful and material things, and the rich man has more of

them than other men. The term wealth, which originally signified the

state of being rich, afterwards came to be applied to the things which

make a man rich, and it is thus that the term is used in the science

of Economics.

What Things constitute Wealth

It is clear that useful things, like

air, which are at hand in unlimited quantity, do not make any one

rich in this comparative sense, for they benefit all alike; and, in so

far as they are concerned, all men are on the same level of welfare.

Moreover, since they are so abundant as to shower benefits everywhere

in profusion, the quantity of them that a man has at his disposal may

be lost or thrown away with entire impunity. He would only have to

help himself again from the abounding supply which nature thrusts on

him in order to be as well off as he was before. A bucketful of water

on the shore of Lake Superior is of no importance to the man who has

it. If it were spilled on the sand, the man would have only to dip up

another bucketful, with an expenditure of effort that would be too

small to take account of. If, however, fresh water were scarce, every

bucketful would have its importance, and the loss of that quantity

would make a distinct impression on the man's well-being. Whenever

each particular part of the supply has this power to make a possessor

better off than he would be without it, the substance is a form of

wealth. The quality of being specifically important is, therefore,

the essential attribute of all the concrete forms of wealth. Sand by

the seashore does not have any specific importance, since it is so

abundant that the gain or loss of a wheelbarrow load would not make a

man better off or worse off; but a pile of sand by the side of an

unfinished building has this quality. There every barrow load is of

consequence, for the available quantity is so small that diminutions

reduce and additions increase the wealth of the possessor. Sand on the

shore has the inherent power to help make mortar, and water in Lake

Superior has the power to quench thirst, but neither of them has the

attribute which would make it a form of wealth, namely, specific

importance. Particular parts of the supply may be lost with impunity.

Varieties of Utility

We have used the term importance, rather

than usefulness or utility, to describe the quality which, if it

exists in every particular bit of a substance, makes it all a form of

wealth. With due care we may use the term utility. In a way even a

cup of water dipped by a fisherman from the lake is useful, for it

renders a service. Though the man might lose it and be no poorer, he

cannot say that the thing has no utility of any kind. He can say that

it has no importance. What it has we may call absolute utility, or

the power to do for a man something which he wishes to have done. When

the fisherman is thirsty the water will do him good. It has an

absolute service-rendering power; and yet this cupful makes the owner

no better off than he would be without it, since the service which it

is capable of rendering would be rendered whether the man had it or

not. Absolute utility in an article is the power to render any service

whatever, regardless of the question whether it would be rendered

equally well if the article were absent. If conditions were such that

the man would have to go thirsty in case he spilled his cupful of

water, then this little supply would have what we may term effective

utility, and this means that the presence of the particular bit is a

positive element in conducing to the man's welfare. Usable things have

absolute utility even when they are superabundant, but they have

effective utility only when the quantity of them is so limited that

every particular bit of it is of some importance. Absolute utility

and limitation of supply insure to them this quality; and this

principle holds true in the economy of the most primitive state as

well as in that of a civilized one.

The Origin of Wealth

Some of the things that have this kind[2] of

utility have been given to man by nature. She has furnished some

materials that are useful and has not furnished them in quantities

sufficient to prevent them from being specifically important. On

account of the comparatively niggardly way in which she has doled them

out to man, every bit of the supply has a power to benefit him; and if

he gains some portions, he goes upward in the scale of well-being, and

if he loses some, he goes downward. Wild fruits and fruit trees come

in this category; and a savage who should build his hut in a small

grove of banana trees, if he could keep other people out of it, would

be, by so much, better off than they. The grove and its fruits would

constitute their owner's wealth.

[2] The term final utility is used with much the same

significance as specific importance. It is the utility of the

last and least important part of the supply, and the use of

the term requires us to think of the supply as offered to

users unit by unit till the whole amount is in their hands.

The first unit, when it stands alone, is more important than

any later one will be. The second is of less consequence, and

the last is the least important of all. When, however, all

have been supplied and are together available for use, one is

as important as another. Each one has an effective utility

which is measured by the service rendered by the last one.

The term specific indicates that we measure the importance

of the supply of an article not in its entirety, but bit by

bit, while the term effective is the antithesis of

absolute and means that each bit of the supply not only

renders an absolute service, but renders one which would not

be gratuitously rendered by some other part of the supply in

case this portion were removed or destroyed. We do not here

think of the supply as built up from nothing to its present

size bit by bit, but look at it as it stands and measure the

importance of any particular quantity. When we speak of final

utility, we think of a series of "increments" supplied one

after another, and in this case the successive increments

become less and less important, since, after some have been

supplied, the want of the kind of good that they represent is

less keenly felt. The conception of the series of units is

merely a means of isolating one unit from a total number and

obtaining a mental measurement of its importance which

corresponds with the effective importance of any unit in the

entire quantity.

Land an Original Form of Wealth

Land is the original gift of

nature to humanity, and wherever there are people enough to make the

possession of a particular piece of it important, it becomes a form of

wealth. It can be valueless only when population is very sparse; and

then an increase in the number of people dwelling on it gives to it

early the attribute of specific importance. The land that is

accessible to a growing population cannot long be superabundant.

Forms of Wealth produced by Labor

Few useful goods are presented

to man by nature in a finished state, and it is therefore necessary

for man to exert himself in order to get the goods that he needs in

the condition in which he can use them. He must make raw substances

more useful than they naturally are, and as he does this the things

become partly products of his labor. Of course the supply of them is

limited, since labor is so.

Labor a Wealth Creator

Labor is a wealth-creating effort, and

there is no labor that is successful in attaining its purpose that

does not help to bring into a serviceable condition something that can

be identified as an economic good or a form of wealth. Some effort,

indeed, fails in what it attempts to do and therefore produces

nothing. We may build a machine that will not work, or make a product

that no one wants; but labor that attains a rational purpose is always

economically productive.

Protective Labor and the Attribute it imparts to Useful


Labor may be classed according to the particular result that

it accomplishes. In saying that the banana grove in our illustration

is wealth to the savage who resides in it, we had to insert the

proviso that he is able to keep other persons out of it. Exclusive

possession or ownership is necessary in order that things may continue

to be effectively useful to any particular person or persons. If they

are superabundant, as we have seen, no part of the supply is

important; but it is also true that if they are scarce and a man is

not able to keep any of them, they will not serve him. In order that

an economic good may be effective, it must be appropriable, and where

claimants are numerous and lawless it may take much of the owner's

time and effort to keep the article in his possession. The savage must

personally protect his goods, and to some extent the civilized man

must do so; for however well policed a city may be, it will not

do to leave purses or portable goods by the wayside. Protective

labor is necessary in all stages of social advancement. In civilized

life, indeed, we delegate much of it to a special class of

persons,--policemen, judges, lawyers, and legislators,--and this is

the most fundamental division of labor that civilization entails; but

the work has to be done in any stage of social evolution. Crusoe's

goods would have been worth nothing to him if he could not have kept

them from the savages who, in time, appeared on his island; and they

would have been worth little if he had been forced to spend most of

his time in guarding them.

Appropriability is, therefore, a further essential attribute of the

things which can make particular men richer by reason of their

presence. When such things are actually brought into ownership, their

utilities become available, as they would not otherwise be. Effort

expended in protecting property is wealth-creating, since it causes

those service-rendering powers which otherwise would be only potential

in goods to become active. In other words, it gives to things which

are otherwise in a condition to be effectively useful a further

quality which they require in order that they may actually promote an

owner's well-being.

Industrial Labor

Industrial labor is the antithesis of protective

labor, and it invariably changes the qualities of material objects in

such a way as to make them useful; that is to say, it directly creates

utilities.[3] These utilities are of different kinds, and the labor

may be classified according to the kind it creates.

[3] The term create is here used in a somewhat loose

sense and does not imply that the man originates matter or

even that he always transforms it without calling in, as an

aid, the forces of nature. The farmer must depend on vital

forces in soil and air in order to raise a crop. What he and

other laborers do is to cause the product in some way to come

into existence, and he and they may in this sense be said to

create the products which would not appear without them.

Elementary Utility

An elementary utility is created when a

substance is either dug out of the ground, as is done in mining, or

when it is secured through the vital forces of the earth, as is done

in agriculture. Hunting, fishing, and stock raising should be classed

with agriculture, since they use the resources of animate nature to

secure for mankind new raw products on which labor will confer further

useful qualities. This utility has to be created by men in every stage

of industrial development, from that of a tropical savage to that of

men in the most advanced civilization.[4]

[4] The distinction between elementary utility and others

does not need to be applied with the utmost strictness, for

mining creates form utility by breaking up masses of ore, and

place utility by making them accessible. Agriculture shapes

its products and moves them to places of storage. It is

convenient in practice to adhere to the more general

classification suggested in the text.

Form Utility

A form utility is created when a raw material is

fashioned into a new shape, subdivided, or combined with other

materials, as is done in manufacturing and, in a certain way, in

commerce. Buying goods in bulk and selling them in small quantities is

the creating of form utilities and makes an addition to total wealth.

Oil in small cans is worth far more for consumption than it would be

if each consumer were forced to buy a tankful. Sugar is worth more to

a consumer when it is doled out to him in paper sacks than it would be

if it were to be had only in hogsheads. Merchants are not mere

exchangers, for they make positive additions to the utility of goods.

In primitive life no such class exists; and yet form utilities of

every kind are created, since men make for themselves the goods that

they use and adapt them in shape and in quantity to their current


Place Utility

Carrying things to places where they become more

useful creates place utilities. In primitive life men do their own

carrying; but in civilized states the common carrier does most of it,

and so imparts place utility to matter on the most extensive scale.

All useful transportation creates this quality, which is a general

attribute of wealth; and the operation of so moving matter as to

create place utility is one of the general functions of labor.[5]

[5] In a way all kinds of production may be analyzed into the

moving of matter. In cutting up raw materials a manufacturer

moves waste portions away from those that are to be utilized,

while combining materials, of course, moves them toward each

other. Neither of these operations creates place utility.

This quality consists in a relation, not between some

materials and others, but between goods and the persons who

are to use them. Bringing things to us from a distance

changes their local relation to us, and in this is the

essence of place utility, and every article that we use must

have acquired this quality. The service-rendering power which

it possesses is only potential until it reaches a place where

the power can be exercised.

Time Utility

There is, moreover, a kind of utility which depends

on the existence of a good at the time when it is needed. Ice in the

warm season, a plow in the spring or the fall, a pleasure boat in

summer, and anything which, by the aid of capital, is presented to a

user when he needs it, illustrate this quality. We may call it time

utility, and creating it is a function of capital. We shall see how

capital assists in the production of the other utilities; but the

creation of time utility it accomplishes without assistance.

Executive and Directive Labor

Labor involves the whole man,

physical, mental, and moral. No labor is so simple that it is not

better done when intelligence is used in the performance of it. The

savage's hut, his canoe, his bows and arrows, etc., vary in their

efficiency and value, not merely according to the time and muscular

effort spent in making them, but also according to the efficiency of

the thought by which those efforts are guided. There is here the germ

of the difference between the executive labor of the modern employee

and the directive labor of the manager. Yet no manager directs in more

than a general way the muscular movements of his subordinates, and

their own intelligence must still be trusted to do much of the

directing. The mental labor that guides and controls the physical is

universal in industry, but becomes more and more a distinct and

dominant factor as civilization increases.

Fidelity as affecting the Productivity of Labor

The fact that all

workmen are largely their own directors brings fidelity into the

foreground as an element in determining men's earning power; but this

element counts for much more in the civilized state than it does in

the primitive one, for here fidelity in directive laborers of the

highest type is most important and difficult to secure. One of the

greatest problems of modern business is how to make directors and

executive officers of corporations faithful to the stockholders who

employ them. In the primitive state these problems do not arise. When

a man is working for himself, mere interest largely takes the place of

fidelity. If to-day any one secures a good house of his own to live

in, it is because he employs contractors, overseers, and artisans all

of whom are, in the main, faithful to his interests and see that the

work of building is properly done. A savage looks after his own

interests as his personal work proceeds; and yet even in his case

there is the germ of that enthronement of character in the supreme

place which is the prominent feature of highly organized industry. In

building a hut to shelter his family, a savage puts into his work

conscience and affection as well as muscular effort; and when the

mother of the family does this work, the altruistic element in it is

still more conspicuous. As society becomes highly organized the

importance of the moral element in all labor increases till the

further progress, or even the existence, of the social order may be

said to depend on it. In the world of business there is now distrust

and turmoil, and revolutions are feared, because of the unfaithfulness

of a class of men to trusts committed to them.[6]

[6] On the ground of convenience, we may classify labor as

physical or mental, according as the work of muscle or of

brain is especially prominent. Digging a ditch requires more

than an average amount of strength and not even an average

amount of intelligence, and it is, therefore, physical labor

rather than mental; while writing a brief or arguing a case

in court requires much power of thought and only a small

amount of muscular strength, and is typically mental labor.

Managing an estate for an absent owner is more largely a

moral function, since the value of the service depends

chiefly on the fidelity of the man who renders it; but

physical and intellectual labor are also involved. These

three types of personal effort are exerted wherever wealth is


The Requisites of Production

If we start with nothing but the

earth in its natural state, inhabited by empty-handed men, and seek to

know what is necessary in order that some wealth may be created, we

find that nothing is absolutely necessary except labor. By working for

a few minutes it is possible to get something that will minister

directly to wants. Yet if men begin operations in a state of such

poverty that they have only their bare hands to apply to the elements

about them, they do not commonly get the usable goods immediately. If

a savage wants fish and makes the rudest net with which to catch them,

he makes what is a capital good. This is wanted only for the sake of

the consumers' wealth which it will help to produce. The end in view

has all the while been fish; but the man works first on an instrument

for catching them. He makes the net by mere labor, but he catches the

fish by means of labor and the net. Without such instruments to aid in

production a dense population could not live at all, and a very sparse

one could live only in a meager and precarious way. If the instruments

are artificially made, or if they are furnished by nature in limited

amounts, they are forms of wealth, or goods; but as their function is

not to minister directly to consumers' wants, but to help in making

things which do this, we distinguish them by the name "producers'

goods" or "capital goods." In contrast with them those commodities

which directly minister to wants may be called "consumers' goods."

The Production of Intermediate Goods

All economic goods are means

to an end. Wealth is always mediate. It is usually a connecting link

between man's labor and the satisfaction of his wants. Man, the

worker, first spends himself on nature, and then nature in turn spends

itself on him. In production nature is the recipient, but in

consumption the recipient is man. This is saying that man serves

himself by means of some element in nature which, under his

manipulation, becomes a form of wealth. He thrusts a bit of natural

matter between himself as a producer and himself as a consumer. All

kinds of wealth, then, stand in an intermediate position between

original labor and the gratification that ultimately results from it.

Some goods, however, are means in the special sense of standing

between labor and other goods. Instruments help to make consumers'

goods and these add to man's pleasure. Using a tool is not generally

agreeable. The tool stands not only between the effort and the

gratification that will ultimately follow, but between the effort and

the further material good that will directly produce gratification.

The hatchet intervenes between the labor that makes it and the

firewood it will cut, while the wood acts directly on the man and

keeps him warm. Capital goods are in this special sense mediate. They

are not wanted for their own sake, but for the sake of something else

that is directly useful.[7]

[7] For an elaboration of the conception of mediate goods the

reader is referred to Von Boehm-Bawerk's work on "Positive

Theory of Capital" and to John Rae's work on "The

Sociological Theory of Capital."

All Labor immediately Productive of Wealth

When a savage abandons

the plan of fishing from the shore and gives his labor for a fortnight

to making a canoe with which to fish more effectively, he interposes

an interval of time between his labor and its ultimate fruits, the

consumers' goods. There is no such interval between the labor and the

kind of wealth that it first creates, namely, the canoe. This

immediate product of labor is itself a form of wealth and at once

rewards the laborer, since it is what he needs, though he does not

need it for consumption. Industry always pays as it goes and tolerates

no hiatus between labor and wealth in some form.

Organized Industry immediately Productive of Consumers' Goods


one man were keeping the stock of canoes of a few fishermen in repair

and taking as his pay a share of each day's catch, he would not have

to wait for his food any longer than the fishermen themselves. This

mode of conducting the industry, however, involves organization. If

each fisherman had to make his first canoe, it would be necessary for

him to wait for fish; but as soon as a stock of canoes has been

obtained and a special set of men assigned to the work of keeping this

stock intact in number and quality, that necessity entirely ceases.

Five men may do nothing but fish while a sixth keeps their stock of

canoes intact by repairing old ones left on the shore and making new

ones to replace such as are beyond repairing. Fishing and boat

building may go on simultaneously, and all the men may go share and

share in each day's catch.[8] This is a type of what goes on in modern

industry, where a complex stock of capital goods always exists and is

kept intact by the action of a class of persons who share the returns

that come from using the stock. None of these persons has to wait for

food, although some of them devote themselves exclusively to the

production of tools. This fact shows that the necessity for waiting,

as well as working, wherever instruments are in the process of

manufacture, is not among the universal phenomena of economics, and

that it is not present in that organized industry which we chiefly

study. Such a permanent stock of capital goods as the fishing

community of our illustration possesses would enable it to get its

food, the fish, day by day, by working in different ways and using the

permanent stock. If we call this permanent supply of canoes, etc.,

capital, it is, in a causal way, mediate wealth, though it is not

so in point of time. Some labor is spent each day on it, and itself

creates each day some consumers' wealth. These two operations go on

simultaneously, and the men who work to maintain the stock and those

who use it get their returns together. In very primitive life the work

spent on capital goods and that spent on consumers' goods are not

always synchronous, but organization and the acquiring of a permanent

fund of capital make them so. Work to-day and you eat to-day food that

is a consequence of the working. In point of time the canoe makers are

fed as promptly as the fishermen, and this fact is duplicated in every

part of the industrial system. We shall later see more fully what this

signifies, but it is clear that any study of this phenomenon--the

synchronizing of labor and its reward--takes us out of the field of

Universal Economics, since it does not appear in the industry of

primitive beginnings, but is the fruit of organization.[9]

[8] One man might be employed in guarding canoes and fish

against theft, which is doing protective rather than

industrial labor; and economic forces would tend to give him

a share as large as each of the others receives, provided, of

course, that the men are of equal capacity as workers.

[9] The conception of capital goods as always putting

enjoyments into the future has crept into economic science

because in certain illustrations taken from primitive life

they seem to have that effect. We shall see that they do not

have it at all in static social industry, and that they

have it only in a limited way in dynamic social industry,

or that which is carried on by a society undergoing organic